Real cash flow will come from digital and mobile

All segments of the Canadian entertainment and media marketplace will remain vibrant with steady revenues over the next five years, according to the latest PricewaterhouseCoopers (PwC) Global Entertainment Media Outlook: 2008 - 2012. However, those that will see the most significant growth are those segments who take advantage of the opportunities in digital and mobile.

The ninth annual edition of the Outlook, contains in-depth analyses and forecasts of 15 major industry segments across five regions of the globe – the United States, EMEA (Europe, Middle East, Africa), Asia Pacific, Latin America, and Canada. The Outlook shows that Canada's entertainment and media market rose by 5.2% in 2007, down from the 8.6% rise in 2006. The overall Canadian market will expand at a 5.8% compound annual growth rate (CAGR) to US$54 billion in 2012 from US$41 billion in 2007. Globally the industry will grow at 6.6% CAGR reaching US$2.2 trillion in 2012.

"While there are still significant revenues coming from traditional segments the biggest movements and highest growth in consumer and advertising spends will come from those who leverage their existing consumers and advertisers and take them into the world of new media enabling consumers to access content on any platform," says Tracey Jennings, leader of the PwC Canada entertainment and media practice. "Yet we cannot lose sight of the growing 50 plus demographic who will continue to consume the media in the format they have become accustomed to. This older generation will balance out the new Net generation - meaning traditional media will continue to be significant. The question now is how advertisers are going to leverage all these different media, combined or stand-alone, to engage the individual customer and their unique media consumption styles."

According to the Outlook, in Canada, Internet advertising (wired and mobile) was the fastest growing in 2007 and jumped 33.2% to US$1.3 billion in 2007. By 2012 Internet advertising is expected to remain Canada's fastest growing segment at 21.1% CAGR to US$3.4 billion. Globally Internet advertising will also see the most robust growth, at 19.5% CAGR through to 2012. However, Internet access growth in Canada (wired and mobile) slowed to 7.7% in 2007 to US$3.4 billion - the only region that did not record a double-digit gain in this segment - and is expected to grow by 10.6% by 2012 to US$5.6 billion.

"With broadband penetration already very high in Canada, broadband access spending growth moderated", says Jerry Brown, Director responsible for PwC's Canadian Entertainment and Media Advisory Practice. "However, it is a key driver of the increases we are seeing in Internet advertising. Keyword search, classified advertising, and online video advertising - full-motion video ads shown on the Internet - will be the fastest-growing components. In the mobile market, wireless network upgrades will similarly drive mobile advertising.

Video games associated with next-generation consoles and large increases in online and wireless games will fuel video game growth. In fact, almost half of advertising and end-user spending will come from online and mobile by 2012. The overall video game market the second fastest growing segment in Canada in 2007 rose 26.5% to US$1.3 billion. However, this segment will slow over the course of the next five years at 9.2% CAGR to US$2.1 billion. End-user spending on video games will increase from US$1.2 billion in 2007 to $1.8 billion in 2012, growing by 8.3% on a compound annual basis. Advertising revenues in video games will more than double from US$104 million in 2007 to US$237 million in 2012, a 17.9% increase on a compound annual basis.

Console/handheld games will continue to be the dominant segment, growing at a 7.0% CAGR from US$641 million in 2007 to $899 million in 2012. The PC game market will decrease from US$124 million in 2007 to US$117 million in 2012. Online games will grow from US$335 million in 2007 to US$484 million in 2012, reflecting a 7.6% CAGR. Wireless games will increase from US$138 million in 2007 to $ 346 million in 2012, exhibiting a 20.2% CAGR, the largest growth rate of the market.

"Canada is home to a number of top video game companies and many of the provinces provide good digital media tax incentives," says Jennings. "These incentives - combined with the supply of talent that exists - make Canada attractive to foreign developers and highlights Canada itself as a leading developer in the video game market. The growth in the sector in Canada, in particular in mobile and online gaming, should positively impact these video games developers."

Radio and out of home advertising continued the solid growth from previous years and grew by 11.0% in 2007 to US$1.7 billion, the highest of all regions, and is expect to continue at a good pace, albeit moving downward at 10.6% CAGR to US$2.9 billion by 2012. A good portion of that growth will come from out-of-home advertising which will expand at a 6.6% CAGR, rising from US$368 million in 2007 to US$507 million in 2012.

"A digital billboard that shows sequential ads that change every 8-10 seconds can generate 10 to 20 times the revenue of a poster that displays a single ad and can be a key source of targeted advertising for companies. It's a unique way to reach customers which is very engaging and entertaining," says Jennings.

The segment that is experiencing the most change is recorded music. The Outlook projects that in Canada, recorded music spending to decrease at a 1.0% CAGR from US$694 million in 2007 to US$660 million in 2012. Physical distribution will fall from US$572 million in 2007 to US$236 million in 2012, a 16.2% CAGR decline. However, digital distribution will expand by 28.3% compounded annually to US$424 million from US$122 million in 2007. Internet distribution will total US$223 million in 2012 from US$75 million in 2007, a 24.4% CAGR increase. Sales of music to mobile phones will rise by 33.7% CAGR to $201 million in 2012 from US$47 million in 2007.

"Again we see how new media is fuelling growth in some areas as a complement to traditional methods. The market is shifting away from consumption of albums in the physical format and toward consumption of single-track downloads in the digital format. While consumers of physical products have little choice but to buy whole albums, the digital world allows the purchase of individual tracks, most of which are not available in a physical single format," says Jennings.

Other key Canadian projections from the Outlook are summarized below:

Filmed Entertainment

Filmed entertainment spending is projected to grow at a 4.9% CAGR to
US$7.5 billion in 2012 from US$5.9 billion in 2007. People will still be going to the movies as box office spending is expected to expand by 3.4% CAGR to US$922 million from $780 million in 2007. However, people will increasingly be watching movies at home as home video sell-through will increase to US$4.4 billion in 2012 from US$3.5 billion in 2007, a 4.7% compound annual increase. Actual in-store rental growth will average 2.0% compounded annually, increasing to US$1.7 billion from US$1.6 billion. Notably, online rental subscriptions and digital streaming will rise to US$402 million in 2012 from only US$21 million in 2007, an 80.5% increase compounded annually.

"Modern movie houses, digital cinemas and 3-D upgrades are enhancing the cinema-going experience, while the ability to watch a movie by downloading it from your internet enabled television without ever leaving your couch is going to be very popular," observes Brown.

Television Subscription and License Fee Market

With digital nearing saturation growth in subscription spending is projected to slow and the subscription and license fee market is expected to only expand at a 5.7% CAGR to US$6 billion in 2012 from US$4.6 billion in 2007. Basic subscription spending will grow at a 4.5% compound growth rate to US$3.8 billion. Premium subscriptions will rise to US$1.1 billion from US$921 million in 2007, a 3.2% increase compounded annually.

Television Advertising

The television advertising market is projected to expand at a 3.6% CAGR to US$3.4 billion in 2012 from US$2.9 billion in 2007. Terrestrial advertising will grow 3.0% CAGR to US$2.4 billion in 2012 from US$2 billion in 2007. However it is specialty channel advertising that will be the faster growing sector, with a projected 4.8% CAGR increase to US$1.1 billion from US$847 million in 2007.

"What we are seeing in TV is that more and more people want specific content beyond what the basic cable providers package for them," notes Brown. "Digital allows for time shifting and the speciality channels cater to a very targeted and niche audience - a winning combination for advertisers. It will be interesting to watch the mobile TV market and how that affects revenues over the long term."

Newspapers and Consumer Magazines

The newspaper industry in Canada is projected to expand at a 1.8% CAGR from US$3.4 billion in 2007 to US$3.8 billion in 2012. Print advertising will reach US$2.61 billion in 2012, up 0.4% on a compound annual basis from US$2.56 billion in 2007. Notably it is digital advertising that will rise at a US23.9% CAGR. Total newspaper advertising, including print and online, will reach $3 billion in 2012 from $2.7 billion in 2007, growing by 2.1% CAGR. Circulation spending will increase at a 0.4% CAGR to US$769 million in 2012 from US$755 million in 2007.

The Outlook projects the consumer magazine publishing market in Canada will climb from US$1.2 billion in 2007 to US$1.4 billion in 2012, increasing at a 2.7% CAGR. Print advertising will expand by 3.3% CAGR to US$782 million from US$665 million in 2007. Digital advertising on magazine Web sites and mobile sites will increase to US$78 million in 2012. Overall advertising will reach US$860 million in 2012 from US$678 million in 2007, a 4.9% CAGR increase. Circulation spending will decrease from $530 million in 2007 to US$518 million in 2012, a 0.5% drop on a compound annual basis.

Jennings comments, "For both newspapers and magazines, the migration of readers to the Internet will limit growth in print advertising but buoy related digital advertising."